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IRS Strategic Plan
A messagefrom the Commissioner
The Internal Revenue Service strives to maintain the fairest and most effective system
of voluntary tax compliance in the world. The environment in which we operate is
complex and constantly changing, and the IRS must change with it.
For example, accelerating globalization and the development of new business
models challenge IRS efforts to ensure that all businesses pay the taxes they owe.
The tax laws are increasingly complex, and the role of tax practitioners and other
third parties in the system is expanding. The explosion in technology has raised
taxpayer expectations for new ways to interact with the IRS – and has significantly
increased security risks, requiring more vigilance.
Even in the face of these challenges, however, studies of international tax systems
show that the U.S. tax system is extremely effective, and the IRS has a highly
motivated workforce that clearly understands its mission. The IRS must continue to
deliver this high level of performance both in how we serve taxpayers and in how we
enforce the tax laws. The Strategic Plan 2009-2013 will guide the IRS in this work
by emphasizing two overarching goals.
Our first goal is to improve service to taxpayers to make voluntary compliance easier.
We will work harder to incorporate taxpayer perspectives, expedite resolution of
taxpayer issues, and provide timely guidance to help all taxpayers pay their fair share
of taxes. We will also strengthen our partnerships with tax practitioners, preparers,
and other third parties in the system.
Our second and equally important goal is to enforce the law to ensure everyone
meets their obligation to pay taxes. We will be timely in our enforcement actions and
expand the approaches and tools we use in compliance activities. We will meet the
challenges of globalization by improving our expertise and coordinating better with
international organizations.
We need to excel at both service and enforcement to meet our mission: it isn’t an
either/or proposition. To succeed, we will support these goals by investing in two
strategic foundations – our people and our technology. We will strive to make the
IRS the best place to work in government. We will give our people the technology
they need to improve efficiency, ensure privacy and security of data, and target the
highest-risk areas of tax abuse and fraud.
I am pleased to present this plan for the long-term direction of the IRS. I am
committed to making it a living document that people at all levels of our organization
will use to guide their work on behalf of the American people.
Douglas Shulman
Commissioner of Internal Revenue
Our Mission
Provide America’s taxpayers top-quality service
by helping them understand and meet their
tax responsibilities and enforce the law with
integrity and fairness to all
IRS Strategic Plan 2009–2013
Contents Major trends affecting the IRS: 2009-2013 9
1. Increasing complexity of tax administration 9
2. Growing human capital challenges 9
3. Explosion in electronic data, online interactions, and related security risks 9
4. Accelerating globalization 10
5. Expanding role of tax practitioners and other third parties in the tax system 10
6. Accelerating change in business models 11
Goal 1: Improve service to make voluntary compliance easier 13
Objective 1: Incorporate taxpayer perspectives to improve all service interactions 13
Objective 2: Expedite and improve issue resolution across all interactions with taxpayers,
making it easier to navigate the IRS
14
Objective 3: Provide taxpayers with targeted, timely guidance and outreach 15
Objective 4: Strengthen partnerships with tax practitioners, tax preparers, and other third
parties in order to ensure effective tax administration
16
Goal 2: Enforce the law to ensure everyone meets their obligations to pay taxes 19
Objective 1: Proactively enforce the law in a timely manner while respecting taxpayer rights
and minimizing taxpayer burden
19
Objective 2: Expand enforcement approaches and tools 20
Objective 3: Meet the challenges of international tax administration 21
Objective 4: Allocate compliance resources using a data-driven approach to target existing
and emerging high-risk areas
22
Objective 5: Continue focused oversight of the tax-exempt sector 23
Objective 6: Ensure that all tax practitioners, tax preparers, and other third parties in the tax
system adhere to professional standards and follow the law
23
Strategic Foundations: Invest for high performance 27
Objective 1: Make the IRS the best place to work in government 27
Objective 2: Build and deploy advanced information technology systems, processes, and
tools to improve IRS efficiency and productivity
28
Objective 3: Use data and research across the organization to make informed decisions and
allocate resources
30
Objective 4: Ensure the privacy and security of data and safety and security of employees 30
How we will measure our performance1 32
Conclusion 35
IRS Employee Images 36
For certain measures, long-term performance targets have been established.
See the Strategic Plan’s measures Appendix at http://www.irs.gov/pub//newsroom/long_term_measures.pdf
1
IRS Strategic Plan 2009–2013
9
Major trends affecting
the IRS: 2009–2013 The Internal Revenue Service will face major societal, demographic and economic changes
over the next 5 years. We will proactively address the challenges and opportunities created
by these evolving trends.
1. Increasing complexity of tax administration
Each year the IRS must respond to new tax provisions from Congress and adjust
to expiring ones. In 2007 alone, 41 provisions expired affecting a wide spectrum
of taxpayers. The legislative mandates we face often have short implementation
periods; these strain management capacity and demand substantial resources. For
example, the 2008 economic stimulus package required us to issue rebate payments
to over 116 million households at the same time as the tax filing season. Even as we
face these challenges, we must efficiently administer the tax code despite its ever-
increasing complexity. To be fair and timely in our response, we must be nimble in
our staffing, have meaningful, just-in-time training models in place, and reinforce our
commitment to acting quickly.
2. Growing human capital challenges
Thirty-one percent of the U.S. population is over the age of 50, up from 26 percent
in 1980. By 2020, this will rise to 35 percent. More than half of IRS employees and
managers are age 50 or older – and 39 percent of IRS executives and 20 percent
of IRS managers are already eligible for retirement. Replacing these people will be
challenging in an increasingly competitive environment for graduates, particularly
in critical fields such as IT and accounting. The IRS must grow employees’ and
managers’ skills and sophistication, even while more senior people retire. To
succeed in the long term, the IRS must focus on attracting and developing skilled
employees, even as the existing workforce ages and the agency continues to face
stiff competition for new talent.
3. Explosion in electronic data, online
interactions, and related security risks
Technologically savvy employees and taxpayers are demanding that government
institutions provide them the same level of tools and online capabilities as best-in-
class private-sector organizations.
10
As more people gain access to the Internet, and as IT systems
become more interconnected, data security concerns rise.
Safeguarding data and systems today is much more difficult than
it was a few years ago.
This year alone, the IRS has
repelled more than 35 million
unauthorized access attempts,
with about one-third of this
malicious activity originating
from outside the country.
Data vulnerability is exacerbated by the fact that criminals are
increasingly focused on accessing personal financial information.
In fact, attempts at identity theft and phishing (i.e., online scams
to steal personal data) related to federal income taxes increased
more than sevenfold in 2008.
We must become more technologically sophisticated to meet increased taxpayer
expectations and maintain data security – modernizing our systems, improving our
training, and continually enhancing our safeguards.
4. Accelerating globalization
U.S.-based corporations more than tripled their foreign profits
between 1994 and 2004, from $89 billion to $298 billion, with
58 percent of that profit earned in low-tax or no-tax jurisdictions.
Since 1990, the number of multinational corporations worldwide
has grown by 20 times to 63,000. U.S. businesses now
make wide use of offshoring and outsourcing – often through
sophisticated and complex transfer pricing systems. The international community
has created the International Financial Reporting Standards (IFRS), a new set
of accounting standards that is becoming a popular alternative to the Generally
Accepted Accounting Principles (GAAP).
The percentage of Americans’
income originating from
foreign sources doubled
between 2001 and 2006.
Personal income tax returns also show the impact of globalization. The number
of individual Americans paying taxes in another country increased by 30 percent
between 2003 and 2005. As taxpayers expand into global markets, we must keep
up with their ever-diversifying needs – assessing our international presence and
developing the skills and relationships needed to ensure that taxpayers with income
abroad pay the taxes they owe.
5. Expanding role of tax practitioners and
other third parties in the tax system
Between 1993 and 2007, the percentage of taxpayers who
prepared their own returns without outside assistance fell by
more than two-thirds, from 41 percent to 13 percent. Use of
paid preparers rose from 51 percent to 60 percent, and use of
software soared from 8 percent to 27 percent. These trends
show no signs of abating. Between 400,000 and 500,000
tax professionals – including Enrolled Agents, certified public
accountants, and attorneys – now operate under the professional
guidelines known as Circular 230, and there are others who are
Between 1993 and 2007,
the share of taxpayers who
prepared their own returns
without a paid preparer or
software fell by more than
two-thirds, from 41 percent to
13 percent.
11
IRS Strategic Plan 2009–2013
outside this regulatory regimen. The IRS must acknowledge the important role
of these third-party practitioners in the tax system, and continue to serve them
effectively while helping ensure that they meet professional standards and abide by
the law.
6. Accelerating change in business models
The business models of tomorrow will be quite different from those of the past,
making IRS interactions with business taxpayers more complicated. Already we are
seeing a rapid rise in “pass-through” companies, which pass their profits through to
their members or shareholders, who then pay the taxes on their individual returns.
These companies include sole proprietorships, partnerships, S-corporations and
LLCs. The growth rate of these business models is outpacing
that of the traditional C-corporation, which, in contrast, pays
corporate rather than individual taxes. Between 1998 and 2007,
the annual growth rate for S-corporations and partnerships was
5.9 and 5.2 percent respectively, while C-corporations grew at
just over 1 percent. These companies are not necessarily small
businesses. Pass-through entities make up 64 percent of all large
and mid-size businesses in the tax system. The IRS must maintain its effort to help
taxpayers understand their obligations, continue its focus on identifying and closing
tax schemes that develop with these new models, and ensure that taxpayers whose
business models are served by different divisions of IRS receive seamless service.
By 2015, the IRS projects that
43 million individual returns will
include business income, up
from 38 million in 2007.
3 0 2 9 9 09 IRS Strategic Plan 2009–201320 09 2 0 3
13
Goal 1 Improve service to make voluntary
compliance easier According to a recent study, nearly 84 percent of all taxes in the United States are calculated
correctly and paid on time by taxpayers who report their income freely and voluntarily.
Studies of international tax systems show that the U.S. system is the most efficient and
effective in the world in generating compliance. We are committed to maintaining this
record, even while addressing the societal, demographic, and economic trends noted above.
We will make it easier for taxpayers to fulfill their civic responsibility to pay taxes by providing
them with world-class service, taking proactive steps to better understand issues from the
taxpayer’s perspective, and reducing taxpayer burden.
OBJECTIVE 1: Incorporate taxpayer
perspectives to improve all service interactions
Every interaction the IRS has with a taxpayer must be seen from the taxpayer’s point
of view, regardless of whether or not we ultimately agree with the taxpayer’s position.
Taxpayers will be judging their interactions with the IRS and the government based
on their most recent experiences with other world-class service organizations. This
measure should be our standard too.
Before we implement major changes or introduce new services and processes, we will
use techniques such as focus groups and surveys to understand taxpayer preferences
across different segments. We will use increasingly sophisticated knowledge of these
segments to provide easier access to information and services.
Whenever possible, we will also ask IRS employees and
stakeholder groups to react to proposed, large-scale changes
before we make them. We want the people affected by our
service programs to have a strong voice in shaping them. In
addition, we will roll out new programs in phases, allowing us to
address issues before they become broader problems. We will
also work hard to make our services accessible to all segments of
the public – including, for example, first-time taxpayers, taxpayers
with low English proficiency, or taxpayers with difficulty using or
accessing computers.
The IRS runs numerous
programs to reach out to
taxpayers with limited English
proficiency. For example, the
IRS produces Publication
4580, Basic Tax Responsibility, on audio CD and DVD in
Spanish, Chinese, Vietnamese,
Russian and Korean.
14
STRATEGY 1: Ensure that we make operational decisions only after considering the views of affected taxpayers
STRATEGY 2: Use focus groups, surveys, and other feedback methods before rolling out new services and processes
STRATEGY 3: Implement phased rollouts wherever possible, including beta-testing periods
STRATEGY 4: Facilitate participation in the tax system by all segments of the public
OBJECTIVE 2 : Expedite and improve
issue resolution across all interactions with
taxpayers, making it easier to navigate the IRS When we resolve taxpayer issues in a timely and accurate manner, we enhance the
taxpayer experience and make it easier for people to comply voluntarily with the law.
This will be particularly important as tax laws continue to grow in complexity.
The IRS sends out 200 million notices and letters to taxpayers or their representatives
each year. We will work to improve the content and delivery of these communications.
In addition, we will continue to offer tools that encourage taxpayers to take an active
role in finding solutions to their tax questions. We have deployed several such
tools, including online payment agreements, pre-filing agreements, and private letter
rulings, and we will develop new tools that allow resolution of issues at the earliest
possible moment.
If a taxpayer deals with more than one business unit within the IRS, we need to
coordinate well with each other to ensure that the hand-off is quick and trouble-
free. To do this, the IRS will encourage and expect each of our employees to take
ownership of the taxpayer’s experience – for example, by staying
on the telephone with a taxpayer until the taxpayer reaches the
appropriate division. We will also align systems and procedures
to help employees who are interacting with the same taxpayers.
The IRS launched the Online
Payment Agreement program
to provide an easy way for
taxpayers to voluntarily resolve
tax liabilities. It offers them an
online, interactive payment
agreement process that
reduces the need for contact
with a customer service
representative and eliminates
paper processing. Almost
50,000 taxpayers and their
representatives have used this
system to arrange payment of
more than $175 million.
Lastly, we can be more efficient in our use of information. We
will seek innovative ways to simplify or eliminate processes that
unnecessarily burden taxpayer or IRS resources. We will expect
every employee, manager, and executive to find ways we can
reduce or eliminate waste.
STRATEGY 1: Streamline processing of taxpayer data and transactions
STRATEGY 2: Ensure seamless taxpayer service by fostering employee ownership of taxpayer issues
15
IRS Strategic Plan 2009–2013
STRATEGY 3: Create explicit opportunities for taxpayers to proactively resolve issues at the earliest possible moment
STRATEGY 4: Systematically review written taxpayer communications to ensure effectiveness
STRATEGY 5: Continuously improve processes to reduce taxpayer burden and capture opportunities to eliminate waste
OBJECTIVE 3: Provide taxpayers with
targeted, timely guidance and outreach
By reducing the time and effort required for taxpayers to understand their tax
obligations, we will reduce taxpayers’ compliance burden and decrease the likelihood
that the IRS will need to employ more costly interventions later.
With a complicated and ever-changing tax code and an
increasingly diverse taxpayer population, the IRS must work
diligently to ensure that we explain and interpret the law as clearly
and concisely as possible.
The Earned Income Tax
Credit (EITC) is available to
low-income workers who
meet certain criteria. Each
year, despite expansive
communications and
education efforts, many
taxpayers fail to claim the
credit. Recently, the IRS
implemented a new process
of reviewing tax returns weekly
to identify taxpayers who
appear to be eligible for the
credit but who did not claim
it. We send these taxpayers a
letter and ask them to provide
a few pieces of information to
allow us to re-process their
return and ensure they receive
the benefit of this credit.
The IRS is continually working to expand our understanding
of what taxpayers need and want. For example, we recently
performed a statistical analysis to forecast how taxpayers value
changes in the performance of our service channels. Over the
next 5 years, we will ramp up our research on what taxpayers
need and want – and how they act accordingly.
As we add new ways for taxpayers to receive assistance, we
must also give them information to select the option that best
meets their needs. Our initial efforts will focus on those groups
that are under-represented in the use of existing IRS service
channels. We will use a variety of outreach methods, including
media coverage and collaboration with other public and private
organizations that serve these groups.
STRATEGY 1: Utilize data and feedback from taxpayers and practitioners to issue clear, concise guidance on the most important tax questions
STRATEGY 2: Develop a more sophisticated understanding of taxpayer segments to allow for targeted communication to taxpayers
STRATEGY 3: Actively communicate service options that bring value to taxpayers and the IRS, to increase awareness and use of them
16
OBJECTIVE 4: Strengthen partnerships with
tax practitioners, tax preparers, and other
third parties in order to ensure effective tax
administration
Third parties – including tax preparers and software companies – provide
87 percent of individual taxpayers with their first line of interaction with the IRS. If these
third parties can provide taxpayers with accurate, complete, and
timely advice, then taxpayers will have an easier time complying
with their obligations. IRS offers a suite of
e-services to better equip
tax professionals and other
third parties to meet their
compliance responsibilities.
For example, in the last
3 years IRS processed
more than 315 million bulk
Taxpayer Identification Number
matching requests that enable
practitioners to validate the
accuracy of Social Security
numbers. In addition, more
than 29 million requests for
transcripts were processed
electronically to assist with a
host of tax matters.
Tax professionals, a critical part of the tax system, outnumber
IRS employees 10 to 1. A survey of tax professionals serving
small businesses and self-employed taxpayers identified their top
service priorities: resolving the notices their clients receive from
the IRS and acquiring pre-filing client account information from
the IRS. To increase the quality of our service to tax partners, we
will create dedicated issue resolution teams, establish centralized
points of contact for practitioners, and expand e-service options.
In addition, we will enhance our systems so that we can quickly
identify and disseminate the most frequent errors to the practitioner
community. As a result, we can educate more practitioners on
topics where they have knowledge gaps, so they can self-correct
and prevent unintended errors.
Distribution of tax returns by preparerSource:
Compliance Data
Warehouse (CDW),
Office of Research;
Statistics of Income,
Research, Analysis,
and Statistics
Individual tax returns filed
for 2007
100% = 135 million
Tax software used
27
Paid preparer used
60
Other
13
Tax returns filed by
corporations in 2007
100% = 1.8 million
Tax software used
11
Paid preparer used
89
Tax returns filed by flow-
through entities in 2006
100% = 6.4 million
Tax software used
7
Paid preparer used
93
17
IRS Strategic Plan 2009–2013
Lastly, we will continue to work closely with tax software manufacturers to ensure
that their customers – both preparers and taxpayers – have access to the most
accurate tax information possible.
STRATEGY 1: Enable partners to better serve their customers by providing faster issue resolution and tailored service
STRATEGY 2: Treat partners as the “first line of compliance” by providing them with the tools and information to encourage taxpayer compliance and prevent mistakes
19
IRS Strategic Plan 2009–2013
Goal 2 Enforce the law to ensure everyone
meets their obligation to pay taxes Although the vast majority of American citizens fulfill their civic duty to pay their taxes, the
country continues to have a sizeable “tax gap” – the difference between what is owed in taxes
each year and what is paid voluntarily and on time. Because the IRS cannot audit its way to full
compliance, a multi-pronged approach is required. We owe it to all the citizens who meet their
civic responsibility to pay taxes to be vigorous in pursuing individuals who are not paying what
they owe.
We will focus on our current enforcement initiatives while seeking other innovative solutions to
reduce the tax gap more effectively. We can hone our enforcement techniques by adding new
tools, such as additional information reporting, soft notices and self-correction to our more
traditional enforcement tools. We must also resolve enforcement issues at the earliest moment
possible. This provides clarity and certainty to taxpayers, and frees up our resources to focus
on the next important issues.
OBJECTIVE 1: Proactively enforce the law in a
timely manner while respecting taxpayer rights
and minimizing taxpayer burden
The IRS must act quickly to initiate compliance contacts, complete audits, and collect
past-due taxes to reduce the burden on both the agency and taxpayers. Applying
the law in a timely manner provides taxpayers with certainty earlier in the process and
the opportunity to rectify noncompliance as soon as possible. In turn, this reduces
overall costs to taxpayers by lowering penalties and interest and enables the IRS
to recover a greater portion of the taxes owed. Improvements in our enforcement
program will continue to be firmly grounded in a culture of respect for taxpayer rights
and with sensitivity to the burdens imposed by enforcement activities.
The proliferation of tax avoidance schemes is a special challenge. New schemes arise
every tax cycle and can spread faster as technology makes it easier to propagate
them. We will address tax avoidance schemes through prompt and decisive action,
combined with educational activities for taxpayers and practitioners. We will leverage
technology, communications, and collaboration among IRS offices and with other
government agencies to quickly identify and confront emerging schemes.
20
To succeed, we must become faster at processing information,
identifying areas of noncompliance, and applying the appropriate
enforcement tools in a timely manner. Third-party reports such as
W-2s and 1099s already play a central role in effective enforcement.
In cases where there is regular third-party reporting and withholding,
the compliance rate is nearly 99 percent. Where there is little or no
reporting, the compliance rates drop off steeply.
The IRS implemented an early
detection program by quickly
reviewing W-2 filings and
identifying instances where
individuals appear to have
significantly under-withheld.
The IRS then sends notices to
alert both the employer and
taxpayer. In a pilot program,
taxpayers receiving the notice
increased their withholding
more than five-fold. They
were also 59 percent less
likely to file a tax return with a
balance due.
The IRS will continue to use the information we already receive,
and support proposals to increase information reporting while
mitigating burden to the public. With the authority of recently
enacted legislation, the IRS will use new third-party information
reported on credit card reimbursements to businesses. The IRS
will also use third-party reporting of security sales to inform its
compliance programs.
STRATEGY 1: Proactively identify and promptly address areas of tax avoidance to minimize their corrosive effects and deter future activity
STRATEGY 2: Build and employ just-in-time enforcement capabilities
STRATEGY 3: Improve compliance by leveraging third-party reporting information
STRATEGY 4: Strengthen partnerships across government to gather and share additional information
STRATEGY 5: Streamline processes to increase the timeliness of enforcement
OBJECTIVE 2 : Expand enforcement
approaches and tools
Alternative treatments provide taxpayers an opportunity to resolve
compliance issues outside of traditional enforcement processes.
For instance, we notify low-income taxpayers seeking the EITC
when they may have claimed a dependent in error. Soft notices
(which are letters to taxpayers) and other non-audit contacts
seek to educate, encourage self-correction, and provide us with
information we need to resolve account issues, while minimizing
taxpayer burden and IRS expense.
The IRS conducted a test
that focused on cases where
third-party information did not
match the information filed on
the individual tax returns. In
the pilot, taxpayers were sent
a notice and asked to self-
correct to avoid the traditional
compliance treatment. More
than 70 percent of the
taxpayers in the test filed an
amended return for the year in
question and/or did not repeat
the underreporting behavior in
the subsequent year.
In addition, the IRS will explore opportunities to improve the
incentives for taxpayers to submit external audit results and take the
necessary corrective action. We have piloted this successfully with
large corporate taxpayers and will seek to expand the program.
21
IRS Strategic Plan 2009–2013
STRATEGY 1: Expand the use of alternative taxpayer treatments, including soft notices and other non-audit contacts
STRATEGY 2: Review and enhance current notice regimen
STRATEGY 3: Provide and expand incentives for taxpayers to conduct independent external audits
STRATEGY 4: Increase self-correction opportunities for taxpayers
OBJECTIVE 3: Meet the challenges of
international tax administration
Taxpayers with international activities – including individuals,
businesses, and tax-exempt organizations – are growing in
number and variety. With businesses that have multiple domestic
and global-tiered entities, for example, it is often difficult for a
taxing authority to determine the full scope and resulting impact
of any particular transaction. Different jurisdictions impose
varying legal requirements on multinational enterprises, leading
to complex business structures. In addition, the percentage of
Americans’ income originating from foreign sources doubled
between 2001 and 2006.
Recognizing the tax
administration challenges
presented by the explosive
growth in cross-border
transactions, the IRS
joined with its counterparts
in the United Kingdom,
Australia, Canada and
Japan to establish the Joint
International Tax Shelter
Information Centre (JITSIC).
More recently, China has
joined as an observer. This
effort co-locates highly
technical personnel from all
countries to conduct bilateral
exchanges of information
on potentially abusive tax
shelter transactions. An
example of this group’s
success was the detection
of an abusive scheme that
improperly generated a
foreign tax credit by large
multinational corporations. It
is highly unlikely that these
transactions would have been
uncovered and understood
without JITSIC.
The IRS must invest to meet the challenges of international tax
administration. We will train employees to identify and understand
issues in a complex and cross-border international environment.
Even basic issues, such as the correct reporting of income, might
require our employees to understand returns prepared under the
International Financial Reporting Standards. We will continue
to develop deep expertise on specific international enforcement
topics, such as how to treat transfer pricing, and will support our
people with the systems and processes needed to analyze data
related to international enforcement efforts.
The IRS will also continue to work with other nations to coordinate
and cooperate on enforcement issues. We will increase the
effectiveness of tax treaties with partner nations and international
organizations and participate in cooperative efforts to identify
tax issues.
We will carefully study the risks associated with international
financial activities and identify priorities for increased enforcement
resources. We will explore innovative enforcement strategies that
keep pace with the realities of a globalized tax environment, including convening
issue management teams and conducting strong, issue-based risk assessments to
target the areas of most significant risk.
22
STRATEGY 1: Expand employee knowledge and awareness of international tax issues
STRATEGY 2: Develop deep expertise and capabilities in key international issue areas
STRATEGY 3: Enhance coordination with treaty partners and international organizations
STRATEGY 4: Aggressively target areas of significant risk
OBJECTIVE 4: Allocate compliance
resources using a data-driven approach to
target existing and emerging high-risk areas
It is essential that the IRS continue to direct resources toward enforcement activities
that have the greatest overall impact on compliance. The IRS has already made
significant advancements in efficient enforcement of the law. In 2007, we collected
$12.60 for every dollar spent on enforcement.
By enhancing our case-selection processes, the IRS will focus its enforcement tools
on activities that pose the highest risk of noncompliance. We will make extensive
use of our research capabilities to inform our efforts. The IRS will sustain its focus on
taxpayer populations where complexity creates opportunities for noncompliance,
such as flow-through entities, high-income individuals and corporations. We will
also continue to investigate those who create and promote tax schemes to ensure
that we aggressively address and deter noncompliance.
False claims for tax refunds continue to be a significant risk for fraud. We will
focus resources on criminal investigations involving existing and emerging high-risk
areas, developing the necessary personnel and technological resources to identify,
investigate, prosecute, and publicize the convictions of taxpayers participating in
this criminal activity.
Large corporate taxpayers are
required to report separately
certain financial transactions
to the IRS – more than
100,000 transactions every
year. The IRS uses this data
to focus its resources on
areas of highest risk and to
detect issues sooner in the
audit process.
STRATEGY 1: Identify high-risk transactions and taxpayers by revising and enhancing case selection procedures
STRATEGY 2: Continue focus on corporations, high-income individuals, business income, and flow-through entities
STRATEGY 3: Identify and pursue promoters of tax schemes
STRATEGY 4: Improve filing compliance by implementing a comprehensive non-filer program
STRATEGY 5: Increase focus on criminal investigations of existing and emerging high-risk areas
23
IRS Strategic Plan 2009–2013
OBJECTIVE 5: Continue focused oversight of
the tax-exempt sector
More than $15 trillion in assets are currently controlled by tax-exempt organizations
or held in tax-exempt retirement programs and financial instruments. The massive
size of this sector requires us to provide more careful oversight and advisory support
than ever before.
Tax-exempt and government entities often find it difficult to navigate the complicated,
specialized and changing tax rules that apply to them. The IRS will provide guidance
and information to help tax-exempt and government entities understand their
responsibilities and comply with the law. We will also discourage those who abuse
tax-exempt status by actively seeking them out and addressing
wrongdoing, making it clear that violations carry a high risk of
meaningful punishment.The 489 non-profit hospitals
covered by a recent IRS study
represent approximately $88
billion in annual revenues,
and a similar amount of total
assets. The study provides
valuable insights into how they
provide community benefit
and meet the standards
required under the law.
Certain segments of the tax-exempt sector, such as hospitals
and universities, are especially large, complex and growing.
For example, university endowments grew by 17 percent to
$411 billion in 2007, with the largest nearing $35 billion. Due to
their size and complexity, and consequent risk to the tax base,
the IRS will continue to monitor compliance and enforce the rules
applicable to universities, hospitals and other major segments of
the tax-exempt community.
STRATEGY 1: Provide outreach and guidance to ensure widespread adherence to the requirements for tax-exempt status
STRATEGY 2: Proactively address misuse of tax-exempt organizations and/ or tax-exempt status
STRATEGY 3: Maintain focus on universities, hospitals and other major segments of the tax-exempt community
OBJECTIVE 6: Ensure that all tax
practitioners, tax preparers, and other
third parties in the tax system adhere to
professional standards and follow the law
With preparers numbering approximately 1 million, their actions have an enormous
impact on our ability to administer the tax laws effectively.
As we focus on providing service to tax preparers, we will also expect cooperation
from them. The IRS will implement a coordinated, servicewide plan to ensure a
consistent and appropriate approach to preparer noncompliance.
24
When preparers fail to follow the law, they not only contribute to
the tax gap, they erode public confidence in the tax system and
create serious consequences for the taxpayers they represent.
For those preparers and practitioners who engage in misconduct
and illegal activity, the IRS will apply the most effective penalties
available. We will expand our analytical capabilities to identify
and prioritize areas of noncompliance and abuse associated with
third parties. Using these new capabilities, we will design specific
outreach and enforcement efforts.
To ensure compliance
by paid return preparers
and in an effort to protect
clients, the IRS monitors
and conducts due diligence
audits on preparers who file
questionable returns.
STRATEGY 1: Develop and implement a coordinated preparer plan across the IRS and the preparer community
STRATEGY 2: Administer a fair, diligent, and effective system of sanctions and penalties for those who fail to follow the law
STRATEGY 3: Leverage research to identify fraudulent return preparers and other areas of abuse and noncompliance by return preparers
IRS Strategic Plan 2009–2013
25
27
IRS Strategic Plan 2009–2013
Strategic foundations Invest for high performance To achieve our service and enforcement goals, we must invest in two strategic foundations
— our people and our technology. The IRS employees of today are our most valuable asset
in effective tax administration, but we face several major challenges such as large numbers
of retirements and competition with both the public and private sectors for critical talent.
Five years from now, we must have the leadership and workforce ready for the next 15 years
at the IRS. We must create long, productive, and rewarding IRS careers and encourage
every employee to mentor and support others.
We must also provide our employees with the world-class technology systems they need
for effective tax administration in the 21st century. The IRS once had the most advanced
systems for tax administration in the world; we need to invest further in modern technologies
to satisfy taxpayer expectations and improve our ability to meet the demands of an
increasingly fast-paced and interconnected world.
OBJECTIVE 1: Make the IRS the best place
to work in government
Our employees are the most important asset of the IRS. Without a high-quality,
dedicated workforce, we cannot tackle the challenges posed by an increasingly
complex external environment. To develop current employees and build our
workforce with qualified new people, we will systematically examine and improve the
ways we recruit, train, evaluate and reward employees of all tenures and positions.
Like many government agencies, the IRS has a maturing workforce and a need for
people ready and able to replace those retiring from critical positions. By 2010,
52 percent of IRS Senior Executive Service employees will be eligible for retirement.
We also face a shortage of qualified candidates for vital roles, such as accounting
and IT, and stiff competition for people from the private sector. These challenges
require us to do more to recruit the best candidates and prepare a new generation
of driven, creative, and energetic employees and managers to lead the organization
through a challenging future.
IRS employees must rely not only on their own skills but also on the skills of others
across the Service. We will need strong collaboration and teamwork to foster and
spread the innovative ideas necessary to meet our challenges. We will look to our
managers and executives, as well as our frontline employees, to reinforce teamwork
and collaborative leadership in their everyday actions.
28
Our management team will work hard to maintain and improve high satisfaction
and engagement among our employees. Simply put, we will make the IRS the best
place to work in government.
Through the Tuition Assistance
Program (TAP), the IRS helped
4,200 employees take courses
in accounting and information
technology, or pursue
other career and personal
development opportunities.
STRATEGY 1: Attract and retain outstanding, diverse talent throughout the IRS
STRATEGY 2: Increase employee engagement
STRATEGY 3: Identify, develop, invest in, and reward top-quality managers
STRATEGY 4: Reinforce a culture of diversity, teamwork, equal opportunity, and collaborative leadership
OBJECTIVE 2: Build and deploy advanced
information technology systems, processes,
and tools to improve IRS efficiency and
productivity
Every day, IRS information technology affects taxpayers and
employees. IT facilitates the processing of 250 million tax returns
each year. It allows IRS service representatives to give taxpayers
quick answers to their questions and enables swift detection of
potential violations. To ensure that we are equipped to meet the
challenges of tax administration in the future, we must continue
our commitment to implementing advanced technological
systems, processes and tools.
In fiscal year 2008, the IRS
processed more than 39
million inquiries through its
“Where’s My Refund?” Web
site.
The core technology systems that the IRS uses to manage taxpayer data and
facilitate our service and enforcement work were ground-breaking when first
created. However, they have not kept pace with rapid innovations in technology and
the explosion in online interaction. This limits the new capabilities the IRS can deliver
to our employees and taxpayers. We will continue our commitment to overcoming
these limitations by investing in modern systems and a common architecture,
delivering significant benefits to taxpayers, employees, and our partners in tax
administration. As we modernize, we will ensure that our systems and procedures
reflect the high priority that we place on security of taxpayer data. We will also
address internal control deficiencies that exist in our legacy systems as we update
them. In our drive to greater efficiency, we will improve our procurement capabilities,
eliminate application redundancies, and pursue server virtualization and IT-enabled
alternative work options.
Americans have become accustomed to completing their financial transactions
online and now expect to connect with the government online as well. To meet
29
IRS Strategic Plan 2009–2013
these expectations, we will make our online tools simpler and more intuitive. We
will help taxpayers get answers to their questions in fewer steps. By leveraging
our understanding of taxpayers, we will make IRS.gov more user-friendly and more
effective at anticipating and providing for taxpayer needs.
During the 2008 filing season, more than 60 percent of individual filings were
received through IRS e-file. In addition to benefiting taxpayers, e-file has allowed
us to integrate data more effectively, making it easier for us to process returns and
make follow-up contacts. We will continue to expand the number of forms and other
materials that taxpayers can use electronically. Similarly, we will explore options
for online service transactions, such as following up on written notices or finding
answers to tax law questions.
Individual tax returns (O/A/EZ) filed annually
Percent; millions
* Estimated;
excludes effects of
2008 ESP
Source: IRS Master
File, ETA Web
site, Document
6292 (2003-2008),
and Preliminary
Document 6187
(spring 2008 update)
100% = 130
Paper 64
e-File 36
2002
130
59
41
2003
131
53
47
2004
132
48
52
2005
133
45
55
2006
137
42
58
2007
138
37
63
2008*
STRATEGY 1: Deliver modernized systems designed to store and manage taxpayer data, strengthen enforcement efforts, and meet service expectations of taxpayers and tax practitioners
STRATEGY 2: Continually monitor the technology portfolio to ensure it supports core operating needs, upgrading physical infrastructure when appropriate
STRATEGY 3: Capture efficiencies through new technologies
STRATEGY 4: Expand online tools and services
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OBJECTIVE 3: Use data and research across
the organization to make informed decisions
and allocate resources
The IRS manages one of the most complex accounting operations in the world
– receiving, processing, and acting on billions of pieces of data every tax season.
Today we use this data to refine our understanding of taxpayers, better target our
enforcement efforts, and measure our effectiveness. We will expand our use of
data and research to strengthen our decision-making processes, placing special
emphasis on improving taxpayer services and enforcement activities.
STRATEGY 1: Develop improved research-driven methods and tools to detect and combat noncompliance and improve resource allocation
STRATEGY 2: Maintain an ongoing research program to determine evolving taxpayer and partner service needs, preferences, and behaviors
OBJECTIVE 4: Ensure the privacy and
security of data and safety and security
of employees
The IRS must confront both physical and electronic threats to maintain the public’s
trust. We must secure both our people and systems to ensure that our operations
run smoothly and continuously.
Taxpayers are legally obligated to report information to the IRS,
and we are obligated to protect that information. With increasing
amounts of data processed, we will redouble our efforts to detect
and prevent security threats. By securing infrastructure, data,
and applications, we will manage access to taxpayer information
so that we may provide quality and timely service while protecting
taxpayers’ information.
Every laptop at the IRS is
equipped with sophisticated
disk encryption software to
protect against unauthorized
use of sensitive data.
The safety and security of our more than 100,000 employees and their environment
is of paramount importance. We will continuously explore ways to reduce the
security risks to employees.
STRATEGY 1: Promote public confidence and trust through the prevention and detection of security threats and the protection of personally identifiable information
STRATEGY 2: Implement measures to maintain a safe and secure workplace
IRS Strategic Plan 2009–2013
31
How we will measure our
performance Because the IRS is a large, complex, performance-oriented organization, we
track hundreds of metrics to ensure that we are operating effectively at all levels of
the organization.
At the highest level, we have chosen a handful of measures that will help us make
certain that the agency is truly making progress toward our long-term goals.1
Voluntary Compliance Rate
We will measure the amount of tax that is paid voluntarily and in a timely manner as
a percentage of the corresponding estimate of true tax liability. This compliance rate
reflects the impact of non-filing, under-reporting, and underpayment combined.
American Customer Satisfaction Index (ACSI)
We will monitor the American Customer Satisfaction Index score related to the
electronic and paper filing processes for the individual income tax.
e-File Rate
We will measure the percentage of all major tax returns filed electronically by
individuals, businesses and tax-exempt entities. “Major” tax returns are those in
which filers account for income, expenses and/or tax liabilities.
Taxpayer Satisfaction with IRS Services
We will administer surveys across all types of service to assess whether the
taxpayer’s issue was resolved in a reasonable amount of time.
Enforcement Contacts
We will track all enforcement contacts including audits, notices, and “Automated
Under-Reporter” to arrive at a more complete measure of coverage rate.
Non-Revenue Enforcement Activity
We will track our enforcement activities that promote compliance yet do not primarily
focus on increasing tax revenue (e.g., tax-exempt compliance programs or Bank
Secrecy Act activities).
1 For certain measures, long-term performance targets have been established.
See the Strategic Plan’s measures Appendix at http://www.irs.gov/pub//newsroom/long_term_measures.pdf
Non-Filers
We will analyze and estimate the number of individuals who do not file income tax
returns, but have an obligation to do so.
Taxpayer Perception of Fairness of IRS
Enforcement
We will administer surveys to taxpayers who were subject to an enforcement
action to assess whether they were treated fairly.
Employee Engagement
We will use the annual employee survey to measure employee satisfaction and
engagement.
Effectiveness of Recruitment – Average Time
to Fill a Job
We will measure the average time it takes to fill a job from an applicant’s point
of view.
New Hire Retention Rate
We will measure our success at retaining the employees that we hire.
Modernization – Timely Data
We will measure the timeliness of data delivery to IRS service and enforcement
personnel.
Conclusion The mandate to collect taxes comes with a tremendous responsibility to operate
with high levels of integrity, fairness and competence. The IRS eagerly accepts this
responsibility. We also believe that increased transparency is the key to creating an
environment of trust, respect, and cooperation, where tax authorities and taxpayers
alike accept elevated levels of responsibility.
This 5-year strategic plan is designed to help us create this environment and achieve
our vision of strengthening America’s voluntary compliance tax system through top-
quality service and enforcement. We believe this will allow the Internal Revenue
Service to maintain and enhance our unique position as the most effective and
fairest voluntary compliance tax system in the world.
In a complex and ever-changing global environment, our mission remains simple,
but vital. We will do everything in our power to make it as seamless and easy as
possible for taxpayers who are trying to pay the right amount of taxes to navigate
our organization, get their questions answered, and pay their taxes. For those
who understand their tax obligation but fail to comply, we will have an aggressive
enforcement program that provides swift and appropriate consequences.
The IRS will use this plan as the foundation of operational discussions and decisions at
every level of our organization. We invite taxpayers to consider this plan, offer us their
views on what we seek to accomplish, and let us know how well we are doing.
36
IRS Employee Images
Eric Swindell, St. Croix, Virgin Islands
Shawn Gogas, Washington, DC
Erika Watts, Chamblee, GA
Maria Jaramillo, Los Angeles, CA
Nureldeen Storey, King of Prussia, PA
Virginia Hwang, Birmingham, AL
Connie Neal, Ogden, UT
Larry Malilay, Laguna Niguel, CA
Erika Watts, Chamblee, GA
Shawn Gogas, Washington, DC
Greg Leong, Redwood City, CA
Carlos Camino, San Jose, CA
Nureldeen Storey, King of Prussia, PA
Cathy Chow, Santa Ana, CA
Larry Malilay, Laguna Niguel, CA
Wanda Wilkinson, Cincinnati, OH
Kathy Howell, Portland, OR
Brandon Van Horne, Cincinnati, OH
Carmen Arredondo, El Paso, TX
Bobby Breed, Fort Worth, TX
Larry Malilay, Laguna Niguel, CA
Erika Watts, Chamblee, GA
Eric Swindell, St. Croix, Virgin Islands
Special thanks to the employees who appear in this
plan and to the Human Capital Office for its support.
37
IRS Strategic Plan 2009–2013
IRSDepartment of the TreasuryInternal Revenue Service
www.irs.gov
Publication 3744 (4-2009) Catalog Number 31685B
